Spending

How Much Car Can You Afford?

Think back to your first car.

What was it? A family car passed from one sibling to the next? An old car from a relative? Something cheap you found in the paper (or online, for you millennials)?

Mine was a 1987 Toyota minivan. Coming from a family of five kids, of course my parents used minivans to haul us around. By the time I reached driving age in the early/mid 1990s, the car was almost 10 years old, which was just as well. I put a lot of battle scars on it.

While many of us have fond memories of the cars we inherited or bought ourselves, owning an automobile is one headache of adulting because they are so bloody expensive.

So because we are one-income households, and many of us don’t live in places with excellent public transportation, cars are a necessary expense.

So just how much car can you afford?

With the average new car clocking in at about $31,000, cars are usually the second most expensive thing you will buy after a house. Except cars lose 60% of their value after five years. At least houses (usually) increase in value!

My car is a perfect example. I have a 2010 Toyota Yaris (her name is Katya, but my coworkers lovingly refer to her as my “meep-meep car” since it’s a subcompact). I bought it new in 2010, and now Kelley Blue Book (kbb.com) estimates its value—in good condition—is exactly half what I paid for it.

I follow Dave Ramsey’s principle that the value of my car is 50% or less of my total income. So if you earn $40,000 a year, your car should be worth no more than $20,000.

There are also other factors to consider when trying to determine how much car you can afford:

  • Gas – As of this writing (August 2017), AAA reports that gas averages $2.28 a gallon nationwide. I’m assuming most of you are not in the Hummer demographic, but buying a car that gets more MPG will save you in the long run. Average out how many times you fill up in a month when you do your budget to keep aware of the costs.
  • Routine maintenance – Oil changes, tire rotation, windshield wiper blades…the list goes on. And the repairs will increase as your car ages. I set aside a certain amount every month in my savings account earmarked for repairs. I fully intend to drive my car until at least 2027, if not 2030. Toyotas last forever, and mine only has 45,000 miles!
  • Taxes – This is harder to determine, but 17 states (mine included) have tax estimators online. You can also call your DMV to see if they can give you a ballpark figure for your budget. Or, worse case scenario, assume what you paid last year will be the same.
  • Insurance – I have already written about how to shop for car insurance. You owe it to yourself to see if you qualify for certain discounts and to carefully research how to get the best deal while maintaining good coverage.
  • Auto club service – I used to have AAA when I drove a very unreliable Subaru. Since I’ve had my Yaris, I haven’t felt the need to have it. But now that she’s 7, that $100 may be a wise investment. As a single woman, this is a great investment, especially if you do a lot if interstate and/or night driving.

Between car payments, gas, etc., your car should represent about 10-15% of your budget. If it gets up toward 20%, you may want to rethink if you have too much car for your personal situation.

Cars offer the freedom to take you wherever you want to go, but they do require expense and planning. Budgeting for you car will make emergency trips to the garage less stressful and empower you to control your finances

What kind of car are you currently driving? Is it draining your budget, or is it manageable? Comment below!

Why You Should ‘Sleep On’ Some Purchases

elevateIs spending $100 a lot to you? Does the thought of paying $100 for a pair of shoes, a purse, or a piece of jewelry make you break out in hives? Or do you channel your inner Tom and Donna and treat yo’self?

Personally, I lean more towards Tom and Donna.

While it is important to save money, you do deserve a treat every now and again. And I believe you get when you pay for, especially when it comes to things like shoes and winter coats, you can’t go completely nuts.

Today I’m going to talk about the importance of waiting a day before buying something, guidelines to help you make wise purchasing decisions, and why you should sometimes splurge.

The $100 rule was an idea I first had when I took Dave Ramsey’s Financial Peace University. In it, he champions “sleeping on” any purchase of over $300 and talking it over with your spouse before you buy. Obviously I don’t have a spouse to talk things over with, so I modified it to fit my life. If I am going to spend $100 on a non-essential item, I think it over for 24 hours.

Simple as that.

Here are my rules for if I want to spend $100:

  1. Groceries, utilities, and other bills do not count. Of course I have to eat and pay the bills. But if I want a new pair of glasses, I have to check the finances to make sure it is in the budget.
  1. Determine if it is a need or a want. Eventually I need a new pair of glasses, coat, or pair of shoes. But I only want jewelry, extra shirts, spa treatments, etc.
  1. If it is a need, I do my research. If it is a want, I definitely sleep on it. I have no problem forking over $100 for a “need” item if it will last me a really long time. But I have to do my due diligence. I scour the web to see where I can score the best deal and go from there. If it is a luxury like jewelry or a dress I want, half the time I find I didn’t really want it after thinking about it.
  1. I am not afraid to spend money on classic, quality items. My current purse, only pair of jeans, and my two favorite pairs of shoes cost over $100, but they have lasted my for years. Here are some questions I ask myself to determine if it is worth the splurge:
  • Will the item last a long time? Is it made well?
  • Does it go with everything you own?
  • Will this be your only winter coat/pair of jeans/purse?
  • Will you enjoy and use it for more than a year?
  1. If I experience even the slightest buyer’s remorse, I return the item. It is important to treat yourself, but if you are not completely delighted with what you bought, why would you keep it?

If you follow these rules and ask yourself these questions, they will hopefully clarify what you need to buy and what you should think about. I am not opposed to spending money, but I want to make sure I am spending it wisely and on quality pieces.

Have you ever “slept on” a purchase before buying? Comment below!

Are Warehouse Stores Worth the Price?

copy-of-warehouse-stores

 

To Costco or not to Costco?

That is the question. Whether ‘tis smarter to pay the annual fee for the privilege of buying a $4.99 rotisserie chicken or 45 rolls of toilet paper at a time, I want to examine the pros and cons of warehouse stores to see if you really get your money’s worth.

  1. Depending on what you buy, the savings can add up. You are probably not going to buy everything at a warehouse store. But when I was a Sam’s Club member, the money I saved in kitty litter paid for my $45 annual membership. Per pound, a 42-pound bag of litter was half the price of litter at the grocery store – a savings of over $100 a year if I bought litter at the grocery store once a month. (Yes, I have a fat cat. I go through a lot of litter.)
  1. Extra bonuses. While Costco and Sam’s Club don’t usually accept coupons, they do have specials in their circulars and mailings. Depending on when you sign up, you can get gift cards to Sam’s and extra sign-up bonuses, such as free food items and/or free upgraded membership.
  1. Cheap eats! When I was a member of Costco, one of my favorite things to do was grab a $1.50 jumbo hot dog and soda before I started shopping. Warehouse stores offer fast, convenient food for low prices. And while not haute cuisine, it’s hard to say “no” to such a cheap meal. And it is genius marketing on Costco’s part to keep that $1.50 combo meal value price the same for the last 30 years.

And don’t forget the samples!


 

But at the same time, there are drawbacks to warehouse stores.

  1. Do you really have room for two quarts of parsley or 30 rolls of paper towels? If you live in an apartment or small house, space is at a premium. It is wise to buy only what you really use and have room to store. While I can easily stash the 42-bag of aforementioned kitty litter, I have less room for a 30-pack of paper towels, which would take me over 5 years to use.
  1. Convenience factor. I loathe grocery shopping. I do all my shopping at one store, even if another item is on sale at another store nearby. For me, my time is more valuable than running errands all over town. So while I may save a few bucks at a warehouse store, I don’t have the patience to go there once a month. I just want to get my shopping over and done with!
  1. Contributing to local economy. While Costco is almost legendary on how well they pay and treat their employees, the same cannot be said of Sam’s. Because I like to support local businesses, I try to shop the locally owned/operated stores and support local jobs with my spending dollars.

In the end, the decision is a question of cost versus convenience. The savings are undeniable, but I personally cannot stand the hassle factor. I think the wisest thing to do would be to pool resources and go in on a “family” membership with a family member or friend who is like family!

What is your experience with warehouse savings? Comment below!

6 Reasons to Hire Someone to Do Your Taxes

Who doesn’t love saving money!?

Heck, I consider it a compliment when my sister calls me “cheap!” But after filing my own taxes for years, I finally sucked it up in 2015 and hired a CPA because I had a new business and I knew I was in over my head. It was one of the best decisions I ever made.

In 2015, 34 million American households had an accountant or tax professional file tax returns for them.1 Is hiring someone to do your taxes a good idea? Here are 6 reasons why hiring a tax professional is a smart idea:

  1. Convenience factor. The most obvious reason to hire a tax professional is for simplicity’s sake. If you don’t have hours to wade through 1099s, 1040 forms, and W-2s—or you just don’t want to—why would you drive yourself crazy?
  1. Cost-effective. As I mentioned last week, you can expect to pay between $100 to over $400 for a quality tax preparer. They are worth that price for the hours of headaches they will save you doing your own taxes. I also know my CPA got me hundreds of dollars’ worth of deductions I would have ignored or simply never read about.
  1. A good professional will understand your situation. Unlike tax software, you are dealing with an actual human you who can answer your questions. They will know the latest tax codes for complicated situations such as:
  • Healthcare costs
  • Small businesses
  • Retirement contributions
  • Student loan interest
  • Mortgage interest and real estate taxes
  • Inheritances
  1. Finding one can be easy. I had no idea how easy it was to find a tax professional—word of mouth. My father highly recommended his tax preparer to me, and I have been so happy to work with her. Other ways to find good referrals:
  • Ask friends, co-workers, and other acquaintances
  • Crowdsource suggestions on social media
  • The IRS even has a directory
  1. You have a lot of choices! There are over 1 million taxes professionals in the United States. Do not hire the first person recommended to you. Don’t be afraid to interview two or three people who were recommended to you. Do you click with the person? Are you comfortable working with them? Do they readily answer questions that directly pertain to your tax situation? If they don’t, that’s OK—just move to the next person on your list.
  1. Support local businesses. I never even considered a storefront tax preparation service like H&R Block. As a small business owner myself, I am passionate about supporting other local entrepreneurs when I can. I like to keep my money in my city’s economy, and my tax preparation fee helps support my friend Lisa and her small business.

Because it will save your time and hassle and especially because you are supporting a local entrepreneur, I feel strongly about hiring a tax professional to do my taxes. If any of these points resonated with you or you are just feeling too overwhelmed this year, consider adding a tax preparer as a valued member of your financial team. There is nothing with reaching out to ask for help, and so many good professionals want to help you!

Have you hired someone to do your taxes? Comment below and tell me about your experience!

1 https://www.irs.gov/uac/Newsroom/More-Taxpayers-Filing-from-Home-Computers-in-2014–Many-Taxpayers-Eligible-to-Use-Free-File.

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